Taxable Perquisites - EPF and NPS

Taxable Perquisites - EPF and NPS

Based on the notification no 11 released on 5th March 2021 by CBDT if the contributions made by Employers to employee's EPF, National Pension Scheme or Retirement Funds exceed 7.5 lakhs then a perquisite value will be added to the taxable income of the individual.

This amount is taxable in the hands of employee.

Definitions

TP = (PC/2)xR + (PC1+TP1)xR
TP= Taxable perquisite under sub-clause (viia) of clause (2) of section 17 of the Act for the current previous year;
TP1 = Aggregate of taxable perquisite under sub-clause (viia) of clause (2) of section 17 of the Act for the
previous year or years commencing on or after 1st day April, 2020 other than the current previous year (See Note);
PC= Amount or aggregate of amounts of principal contribution made by the employer in excess of Rs. 7.5
lakh to the specified fund or scheme during the previous year;
PC1 = Amount or aggregate of amounts of principal contribution made by the employer in excess of Rs. 7.5 lakh to the specified fund or scheme for the previous year or years commencing on or after 1st day April, 2020 other than the current previous year (See Note);
R= I/ Favg;
I=Amount or aggregate of amounts of income accrued during the current previous year in the specified fund or scheme account;
Favg = (Amount or aggregate of amounts of balance to the credit of the specified fund or scheme on the first day of the current previous Year + Amount or aggregate of amounts of balance to the credit of the specified fund or scheme on the last day of the current previous year)/2.

Note: Where the amount or aggregate of amounts of TP1 and PC1 exceeds the amount or aggregate of amounts of balance to the credit of the specified fund or scheme on the first day of the current previous year, then the amount in excess of the amount or aggregate of amounts of the said balance shall be ignored for the purpose of computing the amount or aggregate of amounts of TP1 and PC1."

This feature is enabled by default for all companies using India payroll.

Refer to the article on Understanding Perquisite Tax - which explains this tax from an employee's perspective.

Refer to the payroll processing article to understand how the perquisite tax calculation is shown while running payroll.


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